| |
Explanation of terms
|
|
- 7/23 and 5/25 Mortgages
- Mortgages with a one time rate adjustment
after seven years and five years respectively.
- 3/1, 5/1, 7/1 and 10/1 ARMs
- Adjustable-rate mortgages in which rate
is fixed for three-year, five-year, seven-year and ten-year
periods, respectively, but may adjust annually after that.
- Acceleration
- The right of the mortgagee (lender) to
demand the immediate repayment of the mortgage loan balance
upon the default of the mortgagor (borrower), or by using the
right vested in the Due-on-Sale Clause.
- Adjustable rate mortgage (ARM)
- Is a mortgage in which the interest rate
is adjusted periodically based on a pre-selected index. Also
sometimes known as the renegotiable rate mortgage, the
variable rate mortgage or the Canadian rollover mortgage.
- Adjustment interval
- On an adjustable rate mortgage, the time
between changes in the interest rate and/or monthly payment,
typically one, three or five years depending on the index.
- Amortization
- Means loan payment by equal periodic
payment calculated to pay off the debt at the end of a fixed
period, including accrued interest on the outstanding balance.
- Annual percentage rate (A.P.R.)
- APR is a measurement of the full cost of
a loan including interest and loan fees expressed as a yearly
percentage rate. Because all lenders apply the same rules in
calculating the annual percentage rate, it provides consumers
with a good basis for comparing the cost of loans.
- Appraisal
- An estimate of the value of property,
made by a qualified professional called an
"appraiser".
- Assessment
- A local tax levied against a property for
a specific purpose, such as a sewer or street lights.
- Assumption
- The agreement between buyer and seller
where the buyer takes over the payments on an existing
mortgage from the seller. Assuming a loan can usually save the
buyer money since this is an existing mortgage debt, unlike a
new mortgage where closing cost and new, probably higher,
market-rate interest charges will apply.
- Balloon Mortgage
- A loan which is amortized for a longer
period than the term of the loan. Usually this refers to a
thirty-year amortization and a five year term. At the end of
the term of the loan, the remaining outstanding principal on
the loan is due. This final payment is known as a balloon
payment.
- Blanket Mortgage
- A mortgage covering at least two pieces
of real estate as security for the same mortgage.
- Borrower (Mortgagor)
- One who applies for and receives a loan
in the form of a mortgage with the intention of repaying the
loan in full.
- Broker
- An individual in the business of
assisting in arranging funding or negotiating contracts for a
client but who does not loan the money himself. Brokers
usually charge a fee or receive a commission for their
services.
- Buy-down
- When the lender and/or the home builder
subsidized the mortgage by lowering the interest rate during
the first few years of the loan. While the payments are
initially low, they will increase when the subsidy expires.
- Cash Flow
- The amount of cash derived over a certain
period of time from an income-producing property. The cash
flow should be large enough to pay the expenses of the income
producing property (mortgage payment, maintenance, utilities,
etc.).
- Caps (interest)
- Consumer safeguards which limit the
amount the interest rate on an adjustable rate mortgage which
may change per year and/or the life of the loan.
- Caps (payment)
- Consumer safeguards which limit the
amount monthly payments on an adjustable rate mortgage may
change.
- Certificate of Eligibility
- The document given to qualified veterans
which entitles them to VA guaranteed loans for homes, business
and mobile homes. Certificates of eligibility may be obtained
by sending form DD-214 (Separation Paper) to the local VA
office with VA form 1880 (request for Certificate of
Eligibility)
- Certificate of Reasonable Value
(CRV)
- An appraisal issued by the Veterans
Administration showing the property's current market value
- Certificate of veteran status
- The document given to veterans or
reservists who have served 90 days of continuous active duty
(including training time) It may be obtained by sending DD 214
to the local VA office with form 26-8261a (request for
certificate of veteran status. This document enables veterans
to obtain lower down payments on certain FHA insured loans).
- Closing
- The meeting between the buyer, seller and
lender or their agents where the property and funds legally
change hands, also called settlement. Closing costs usually
include an origination fee, discount points, appraisal fee,
title search and insurance, survey, taxes, deed recording fee,
credit report charge and other costs assessed at settlement.
The cost of closing usually are about 3 percent to 6 percent
of the mortgage amount.
- COFI
- Adjustable-rate mortgage with rate that
adjusts based on a cost-of-funds index, often the 11th
District Cost of Funds.
- Construction loan
- A short term interim loan to pay for the
construction of buildings or homes. These are usually designed
to provide periodic disbursements to the builder as he
progresses.
- Contract sale or deed:
- A contract between purchaser and a seller
of real estate to convey title after certain conditions have
been met. It is a form of installment sale.
- Conventional loan
- A mortgage not insured by FHA or
guaranteed by the VA.
- Credit Report
- A report documenting the credit history
and current status of a borrower's credit standing.
- Debt-to-Income Ratio
- The ratio, expressed as a percentage,
which results when a borrower's monthly payment obligation on
long-term debts is divided by his or her gross monthly income.
See housing expenses-to-income ratio.
- Deed of trust
- In many states, this document is used in
place of a mortgage to secure the payment of a note.
- Default
- Failure to meet legal obligations in a
contract, specifically, failure to make the monthly payments
on a mortgage.
- Deferred interest
- When a mortgage is written with a monthly
payment that is less than required to satisfy the note rate,
the unpaid interest is deferred by adding it to the loan
balance. See negative amortization
- Delinquency
- Failure to make payments on time. this
can lead to foreclosure.
- Department of Veterans Affairs
(VA)
- An independent agency of the federal
government which guarantees long-term, low-or no-down payment
mortgages to eligible veterans.
- Discount Point
- see point
- Down Payment
- Money paid to make up the difference
between the purchase price and the mortgage amount.
- Due-on-Sale-Clause
- A provision in a mortgage or deed of
trust that allows the lender to demand immediate payment of
the balance of the mortgage if the mortgage holder sells the
home.
- Earnest Money
- Money given by a buyer to a seller as
part of the purchase price to bind a transaction or assure
payment.
- Entitlement
- The VA home loan benefit is called
entitlement. Entitlement for a VA guaranteed home loan. This
is also known as eligibility.
- Equal Credit Opportunity Act
(ECOA)
- Is a federal law that requires lenders
and other creditors to make credit equally available without
discrimination based on race, color, religion, national
origin, age, sex, marital status or receipt of income from
public assistance programs.
- Equity
- The difference between the fair market
value and current indebtedness, also referred to as the
owner's interest. The value an owner has in real estate over
and above the obligation against the property.
- Escrow
- An account held by the lender into which
the home buyer pays money for tax or insurance payments. Also
earnest deposits held pending loan closing.
- Fannie Mae
- seeFederal National Mortgage
Association.
- Farmers Home Administration
(FmHA)
- Provides financing to farmers and other
qualified borrowers who are unable to obtain loans elsewhere.
- Federal Home Loan Bank Board
(FHLBB)
- The former name for the regulatory and
supervisory agency for federally chartered savings
institutions. Agency is now called the Office of Thrift
Supervision
- Federal Home Loan Mortgage
Corporation(FHLMC) also called "Freddie
Mac",
- Is a quasi-governmental agency that
purchases conventional mortgage from insured depository
institutions and HUD-approved mortgage bankers.
- Federal Housing Administration
(FHA)
- A division of the Department of Housing
and Urban Development. Its main activity is the insuring of
residential mortgage loans made by private lenders. FHA also
sets standards for underwriting mortgages.
- Federal National Mortgage
Association (FNMA) also know as "Fannie
Mae"
- A tax-paying corporation created by
Congress that purchases and sells conventional residential
mortgages as well as those insured by FHA or guaranteed by VA.
This institution, which provides funds for one in seven
mortgages, makes mortgage money more available and more
affordable.
- FHA loan
- A loan insured by the Federal Housing
Administration open to all qualified home purchasers. While
there are limits to the size of FHA loans ($155,250 as of
1/1/96), they are generous enough to handle moderately-priced
homes almost anywhere in the country.
- FHA mortgage insurance
- Requires a fee (up to 2.25 percent of the
loan amount) paid at closing to insure the loan with FHA. In
addition, FHA mortgage insurance requires an annual fee of up
to 0.5 percent of the current loan amount, paid in monthly
installments. The lower the down payment, the more years the
fee must be paid.
- FHLMC
- The Federal Home Loan Mortgage
Corporation provides a secondary market for savings and loans
by purchasing their conventional loans. Also known as
"Freddie Mac."
- Firm Commitment
- A promise by FHA to insure a mortgage
loam for a specified property and borrower. A promise from a
lender to make a mortgage loan.
- Fixed Rate Mortgage
- The mortgage interest rate will remain
the same on these mortgages throughout the term of the
mortgage for the original borrower.
- FNMA
- The Federal National Mortgage Association
is a secondary mortgage institution which is the largest
single holder of home mortgages in the United States. FNMA
buys VA, FHA, and conventional mortgages from primary lenders.
Also known as "Fannie Mae."
- Foreclosure
- A legal process by which the lender or
the seller forces a sale of a mortgaged property because the
borrower has not met the terms of the mortgage. Also known as
a repossession of property.
- Freddie Mac
- see Federal Home Loan Mortgage
Corporation
- Ginnie Mae
- see Government National Mortgage
Association.
- Government National Mortgage
Association (GNMA)
- Also known as "Ginnie Mae",
provides sources of funds for residential mortgages, insured
or guaranteed by FHA or VA.
- Graduated Payment Mortgage
(GPM)
- A type of flexible-payment mortgage where
the payments increase for a specified period of time and then
level off. This type of mortgage has negative amortization
built into it.
- Guaranty
- A promise by one party to pay a debt or
perform an obligation contracted by another if the original
party fails to pay or perform according to a contract.
- Hazard Insurance
- A form of insurance in which the
insurance company protects the insured from specified losses,
such as fire, windstorm and the like.
- Housing Expenses-to-Income Ratio
- The ratio, expressed as a percentage,
which results when a borrower's housing expenses are divided
by his/her gross monthly income. See debt-to-income ratio.
- Impound
- That portion of a borrower's monthly
payments held by the lender or servicer to pay for taxes,
hazard insurance, mortgage insurance, lease payments, and
other items as they be
- Jumbo Loan
- A loan which is larger (more than
$240,000 as of 1/1/99) than the limits set by the Federal
National Mortgage Association and the Federal
Home Loan Mortgage Co
- Mortgage Insurance
- Money paid to insure the mortgage when
the down payment is less than 20 percent. See private
mortgage insurance, FHA mortgage insurance.
- Mortgagee
- The lender
- Mortgagor
- The borrower or homeowner
- Negative Amortization
- Occurs when your monthly payments are
not large enough to pay all the interest due on the loan.
This unpaid interest is added to the unpaid balance of the
loan. the danger of negative amortization is that the home
buyer ends up owing more than the original amount of the
loan.
- Net Effective Income
- The borrower's gross income minus
federal income tax.
- Non Assumption Clause
- A statement in a mortgage contract
forbidding the assumption of the mortgage without the prior
approval of the lender. Note: The signed obligation to pay a
debt, as a mortgage note.
- Office of Thrift Supervision (OTS)
- The regulatory and supervisory agency
for federally chartered savings institutions. Formally known
as Federal Home Loan Bank Board
- One-year adjustable
- Mortgage whose annual rate changes
yearly. The rate is usually based on movements of a
published index plus a specified margin, chosen by the
lender.
- Origination Fee
- The fee charged by a lender to prepare
loan documents, make credit checks, inspect and sometimes
appraise a property; usually computed as a percentage of the
face value of the loan.
- Permanent Loan
- A long term mortgage, usually ten years
or more. Also called an "end loan."
- PITI
- Principal, Interest, Taxes and
Insurance. Also called monthly housing expense.
- Pledged account Mortgage
(PAM):
- Money is placed in a pledged savings
account and this fund plus earned interest is gradually used
to reduce mortgage payments.
- Points (loan discount
points)
- Prepaid interest assessed at closing by
the lender. Each point is equal to 1 percent of the loan
amount (e.g., two points on a $100,000 mortgage would cost
$2,000).
- Power of Attorney
- A legal document authorizing one person
to act on behalf of another.
- Prepaid Expenses
- Necessary to create an escrow account
or to adjust the seller's existing escrow account. Can
include taxes, hazard insurance, private mortgage insurance
and special assessments.
- Prepayment
- A privilege in a mortgage permitting
the borrower to make payments in advance of their due date.
- Prepayment Penalty
- Money charged for an early repayment of
debt. Prepayment penalties are allowed in some form (but not
necessarily imposed) in many states.
- Primary Mortgage Market
- Lenders making mortgage loans directly
to borrower's such as savings and loan associations,
commercial banks, and mortgage companies. These lenders
sometimes sell their mortgages into the secondary mortgage
markets such as to FNMA or GNMA, etc.
- Principal
- The amount of debt, not counting
interest, left on a loan.
- Private Mortgage Insurance
(PMI)
- In the event that you do not have a 20
percent down payment, lenders will allow a smaller down
payment - as low as 3 percent in some cases. With the
smaller down payment loans, however, borrowers are usually
required to carry private mortgage insurance. Private
mortgage insurance will usually require an initial premium
payment and may require an additional monthly fee depending
on you loan's structure.
- Realtor
- A real estate broker or an associate
holding active membership in a local real estate board
affiliated with the National Association of Realtors.
- Recission
- The cancellation of a contract. With
respect to mortgage refinancing, the law that gives the
homeowner three days to cancel a contract in some cases once
it is signed if the transaction uses equity in the home as
security.
- Recording Fees
- Money paid to the lender for recording
a home sale with the local authorities, thereby making it
part of the public records.
- Refinance
- Obtaining a new mortgage loan on a
property already owned. Often to replace existing loans on
the property.
- Renegotiable Rate Mortgage
- A loan in which the interest rate is
adjusted periodically. See adjustable rate mortgage.
- RESPA
- Short for the Real Estate Settlement
Procedures Act. RESPA is a federal law that allows consumers
to review information on known or estimated settlement cost
once after application and once prior to or at a settlement.
The law requires lenders to furnish the information after
application only.
- Reverse Annuity Mortgage
(RAM)
- A form of mortgage in which the lender
makes periodic payments to the borrower using the borrower's
equity in the home as collateral for and repayment of the
loan.
- Satisfaction of Mortgage
- The document issued by the mortgagee
when the mortgage loan is paid in full. Also called a
"release of mortgage."
- Second Mortgage
- A mortgage made subsequent to another
mortgage and subordinate to the first one.
- Secondary Mortgage Market
- The place where primary mortgage
lenders sell the mortgages they make to obtain more funds to
originate more new loans. It provides liquidity for the
lenders.
- Servicing
- All the steps and operations a lender
performs to keep a loan in good standing, such as collection
of payments, payment of taxes, insurance, property
inspections and the like.
- Settlement/Settlement Costs
- see closing/closing costs
- Shared Appreciation Mortgage
(SAM)
- A mortgage in which a borrower receives
a below-market interest rate in return for which the lender
(or another investor such as a family member or other
partner) receives a portion of the future appreciation in
the value of the property. May also apply to mortgage where
the borrowers shares the monthly principal and interest
payments with another party in exchange for part of the
appreciation.
- Simple Interest
- Interest which is computed only on the
principle balance.
- Survey
- A measurement of land, prepared by a
registered land surveyor, showing the location of the land
with reference to know points, its dimensions, and the
location and dimensions of any buildings.
- Sweat Equity
- Equity created by a purchaser
performing work on a property being purchased.
- Title
- A document that gives evidence of an
individual's ownership of property.
- Title Insurance
- A policy, usually issued by a title
insurance company, which insures a home buyer against errors
in the title search. The cost of the policy is usually a
function of the value of the property, and is often borne by
the purchaser and/or seller. Policies are also available to
protect the lender's interests.
- Title Search
- An examination of municipal records to
determine the legal ownership of property. Usually is
performed by a title company.
- Truth-In-Lending
- A federal law requiring disclosure of
the Annual Percentage Rate to home buyers shortly after they
apply
for the loan. Also known as Regulation Z.
- Two-Step Mortgage
- A mortgage in which the borrower
receives a below-market interest rate for a specified number
of years (most often seven or 10), and then receives a new
interest rate adjusted (within certain limits) to market
conditions at that time. the lender sometimes has the option
to call the loan due with 30 days notice at the end of seven
or 10 years. also called "Super Seven" or
"Premier" mortgage.
- Underwriting
- The decision whether to make a loan to
a potential home buyer based on credit, employment, assets,
and other factors and the matching of this risk to an
appropriate rate and term or loan amount.
- USURY
- Interest charged in excess of the legal
rate established by law.
- VA Loan
- A long-term, low-or no-down payment
loan guaranteed by the Department of Veterans Affairs.
Restricted to individuals qualified by military service or
other entitlements.
- VA Mortgage Funding Fee
- A premium of up to 1-7/8 percent
(depending on the size of the down payment) paid on a
VA-backed loan. On a $75,000 fixed-rate mortgage with no
down payment, this would amount to $1,406 either paid at
closing or added to the amount financed.
- Variable Rate Mortgage
(VRM)
- see adjustable rate mortgage
- Verification of Deposit
(VOD)
- A document signed by the borrower's
financial institution verifying the status and balance of
his/her financial accounts.
- Verification of Employment
(VOE)
- A document signed by the borrower's
employer verifying his/her position and salary.
- Warehouse Fee
- Many mortgage firms must borrow funds
on a short term basis in order to originate loans which are
to be sold later in the secondary mortgage market (or to
investors). When the prime rate of interest is higher on
short term loans than on mortgage loans, the mortgage firm
has an economic loss which is offset by charging a warehouse
fee.
- Wraparound mortgage
- Results when an existing assumable loan
is combined with a new loan, resulting in an interest rate
somewhere between the old rate and the current market rate.
The payments are made to a second lender or the previous
homeowner, who then forwards the payments to the first
lender after taking the additional amount off the top.
|
|
|
|
|
|
|
|
|
|
pro1040
© 
- Help To Keep Your Life In Balance